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Of Modern Engineering Research (IJMER)

Value Chain Bankrolling: Strategy towards enhancing growth in


Agriculture sector in India
Sushil D. Yeole1, Shailesh B. Wahulkar2, Amol A. Parihar3, Pankaj G. Dhoble4
Nandkishor D. Bankar5, Bhalchandra D. Bhalekar6
1,2,3,4,5,6

Department of Mechanical Engineering, MGM Polytechnic, Aurangabad, India

ABSTRACT: Value chain has been an important concept in management offering improvement over the
traditional supply or distribution chain, with an aim to optimize the chain and reduce it to limited links
with each one performing an activity to enhance the value of the product and not merely the cost. Further,
management of such value chain network should focus on cohesively taking the stake-holders along and
sharing / spreading the benefits among them, such that the network becomes symbiotic and sustainable,
and the process of value-addition & delivery gets ethical. The main objective of this research paper is to
highlight the key value chain activities in context to agricultural products and suggests the importance of
value chain financing which requires due attention from National and Regional level financing
corporations.
Keywords: Value Chain, Value Chain Financing.

I. INTRODUCTION
Today, the world is five
in the
of in
a consumer
revolution.
The lifestyles,
eating habits
Keywords(11Bold):About
keymidst
words
alphabetical
order, separated
by comma(10
Italic)and the taste for
the goods are changing drastically. The consumers in many countries are very conscious of what they eat and
how they eat. People are not simply accepting the traditional lifestyle or the traditional eateries. Income levels
have risen further influencing the tastes, choices and consumption patterns. This creates a new paradigm where
the entire food system is driving the growth in agriculture and agribusiness, with better prospects for
stakeholders. The choices, tastes are the driving factors for the value addition in agricultural supply chain.
A supply chain in agriculture can be thought of as a "farm to fork" process from the inputs to
production to processing, marketing and the consumer. Each level has one or numerous linkages. The unit value
is increased as a product moves along the supply chain. Therefore, the value chain consists of a series of
activities and relationships that add value to a final product, beginning with the production, continuing with the
processing or elaborating of the final product, and ending with the marketing and sale to the consumer or end
user. The interdependent linkages of the chain and the security of a market-driven demand of the final product
provide the producers and processors with an assured market for their products. This reduces risk, thus making it
easier to obtain financing and at lower cost from banks and other financiers. The linkages also allow financing
to flow up and down the chain.
In fact, Value chain finance is not new, but is older than many forms of finance, especially in
agriculture. What is new are the numerous new ways of providing such financing as well as the convergence and
inter-linking of agribusiness and finance. It is receiving a lot of attention today. Business leaders in both finance
and agriculture have come to realize that with the new innovations in communication technology, information
management, etc., there is a wealth of new opportunities for them to profitably work together. It can be a winwin situation to reduce transaction costs and reduce risks. Many of these innovations are quite new, which is
why we need to learn these innovations.

II. UNDERSTANDING SUPPLY CHAIN


The supply chain is an innovative management practice which insists on cooperative relationship
between different players in the chain. Networking of farmers with suppliers of inputs and the processors is
essential. It is nothing but a group organization which is connected to each other by flow of Products, Services,
Finance and Information. The benefits of an integrated supply chain are:
1) Gives feedback to the farmer to grow what sells."
2) Better price discovery.
3) Availability of best farming practices for ensuring good yield and quality.
4) Better post-harvest technologies to arrest deterioration.
5) Higher price due to sorting, grading etc.
6) Partial disintermediation by eliminating middlemen.
| IJMER | ISSN: 22496645 |

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| Vol. 5 | Iss.1| Jan. 2015 | 17|

Value Chain Bankrolling: Strategy towards enhancing growth in agriculture sector in India
7) Extended shelf life of commodity due to processing / packaging etc.
8) It helps Indian farmers who lack market orientation.
9) It gives opportunity to have Industry farmer Linkage.

III. VALUE CHAIN


Now, comes the concept of 'Value Chain' A value chain is a sequence of activities that a product passes
through, with value added in each stage - from design, to the transforming of inputs, to the final market. These
activities are carried out by a series of actors, who set rules and relate to each other in different ways, depending
on the value chain. In chains dominated by the increasing concentration and power of retailers, value is
increasingly derived by product differentiation and innovation that reduces cost and enhances the importance of
reliable supply.
4.1 Developing the Fresh Produce Value Chain
Area
Present Scenario
Production
Low yields
Production scattered over many
Small farms
Outdated harvesting technologies
Inadequate information about
prices, trends and customer needs
Procurement /
Traditional, agent driven
Transportation
procurement system
Extremely poor transportation
infrastructure
Very limited cold storage facilities
High degree of wastage
Marketing /
Produce is inconsistent in quality
Distribution
Outdated, inadequate distribution
infrastructure
Limited organized fresh produce
High degree of wastage

Moving towards Future Scenario


Significantly higher yields
Use of modern technology
Better linkages with the market, more
awareness about prices, trends and
customer needs
Improved post-harvest
technologies
available to most farmers
Efficient procurement system with few
middle man
Reduced wastage due to better road /
rail and refrigeration infrastructure.
Widespread organized fresh produce
retailing, demanding high quality
produce
Upgraded distribution export facilitated
throughprovisions of adequate coldstorage/ pre-cooling infrastructure at
ports/ airports

4.2 Value Chain Analysis


Value chain analysis helps us to identify key bottlenecks to economic growth, finds financial service
gaps in terms of these key bottlenecks, and identifies and incorporates key actors in relevant value chains (such
as those with the potential both for high growth and small enterprise participation). This tool can be useful in
identifying financial services for which there is significant economic demand and interventions that can expand
existing supply chain in efficient and sustainable ways. An analysis conducted by Kula and Farmer in 2004 (for
USAID) included the following four steps:1) A cluster mapping of the region, starting with the key players in the identified commodity, and then layering
on those entities providing services to the value chain such as commercial agents, transporters, service
providers, machinery repair businesses, insurance companies, and financial institutions.
2) An inventory of financial service providers banks, finance, companies, NGOs, agribusinesses in the
region, and the range and quantity of financial services they are currently providing; also the mutual finances /
credit facilities provided among value chain partners.
3) Interviews of key stakeholders identified in the mapping and inventory exercises, focusing on three critical
concerns:a) The opportunities for and constraints to increased growth and competitiveness of the agribusiness sector
in the region,
b) the opportunities for and constraints to increased small holder participation in this growth, their benefit
from it, and
c) The role for improved financial services in contributing to this growth.
4) Identification of the critical constraints:As such, a banker has to work out the opportunities to finance different players in the chain covering
various components. The Branches should consider the whole range of activities in a chain that would establish
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Value Chain Bankrolling: Strategy towards enhancing growth in agriculture sector in India
backward linkage i.e. networking with input suppliers and forward linkages i.e. covering processors who buy
these products and marketers.
Till recently, Bankers were financing separately or in isolation to the suppliers, farmers, contract
farming firms, distributors, transporters, etc. Most of the bank credit was limited to production and harvesting.
Financing the whole chain is a paradigm shift called for in bankers approach. The increased participation of
private sector in agri - marketing and elimination of middle men would open up a host of opportunities for the
banking sector from production to organized retailing.
In view of the above, promotion of value chain has been identified as one of the core initiatives of the Bank in
Agri-business. This will help in:a) Financing the whole chain that can cover large quantum at lower cost.
b) All commercial activities in the chain getting finance.
c) Loan recovery efforts.
d) Giving momentum to our agri-exposure.

IV. STEPS FOR CONDUCTING A VALUE CHAIN STUDY


A detailed step-by-step guide to take up the value chain study is as under:A. Collection of Data:i) Area and production Taluka-wise.
ii) Potential clusters & Surplus.
iii) Branches in potential clusters.
iv) List of progressive farmers in potential clusters.
v) Cost of cultivation and Scale of Finance.
vi) Innovative methods.
vii) Major inputs and its suppliers.
viii) Flow of farm produce & Procurement structure.
ix) Post harvest technologies to be introduced.
x) Processing facilities.
xi) Marketing.
xii) Export.
xiii) Research institutes and agencies.
B. Scope for Finance:i) Crop production
ii) Crop Procurement
iii) Crop Post harvest
iv) Crop Processing
v) Crop Marketing
vi) Innovative Finance

V. THE THREE-PRONGED STRATEGY


1) Know the market
As a banker, we should not only finance parts of a value chain, but rather be involved from top to
bottom. In that way we could really know the market from "inside out" and the weakest links could easily be
exposed and addressed accordingly. Also, transaction costs could be reduced through the integration of
knowledge and flow. A look at the leaders in the food industry brings out that they often have dedicated food
and agribusiness research analysts whocontinuously accumulate knowledge in their major sectors and inform
and advise clients on all relevant issues through-out the value chain. For small farmers, they may also need a
catalyst and may require an intermediary to facilitate this market knowledge and linkage, but the principle holds
know the market.
A) Suggestion:
As our Technical Officer (Farm Sector) strength is going up, we may think of ensuring a dedicated
Officer in each Circle and identify some specific commodities (if not one for one commodity). He /she will
collect all the relevant market information and pass it on to the branches / clients for increase in agri-business
growth by way of value chain.
2) Financing along the Value Chain
Risk, return and repayment carry the same importance for value chain finance as with any conventional
finance. For finance within the chain, credit risk is actually seen as a subset of the overall value chain business
risk. The return, or profitability, is similar and often is embedded into the process in such a way as to not even
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Value Chain Bankrolling: Strategy towards enhancing growth in agriculture sector in India
be explicit. Repayment risk is also often not simply a function of a client going to the bank and repaying his/her
loan but is payment through delivery of the product or payment when the processor or exporter delivers. If there
is a "seamless" integration in the value chain system, this risk is minimized and the costs reduced.
3) Strategic partnerships
Value chain finance, like value chain systems, is all about strategic partnerships which link together the
essential products and services. These are not just up and down the chain but in every direction. Strategic
alliances can improve competitiveness in a win-win situation.

VI. CONCLUSION
By using value chain bankrolling strategy in agriculture sector a farmer can ensure higher yield with
the use of modern technology and efficient procurement system with few middle man. Currently India has only
10% cold storage facility of the overall produce and because of this reason it leads to waste as agriculture
products have short product life cycle and research shows that 20-40% of the food grown in India ends up
spoiling before it ever reaches consumers, but with this funding strategy India can rise its cold storage capacity
and undoubtedly be come food supplier of the world.

REFERENCES
[1]
[2]
[3]
[4]

[5]

Porter, M. E. (1996), What is strategy? Harvard Business Review, NovDec, The value chain, 61-78.
Armand, Francoise. (2005), Increasing Access to Affordable Hormonal Contraceptives: Can the Pool of
Manufacturers Supplying the Developing World be Expanded?.
Goldmark& Barber (2005), Trade, Micro and Small Enterprises and Global Value Chains,
DevelopmentAlternatives Inc, USAID MicroReport.
Kula & Farmer (2004), Mozambique Rural Financial Services Study, AMAP, Microcase Study #1.
USAID, AMAP (2005), Value Chain Approach to Poverty Reduction: Equitable Growth in Todays Global
Economy.

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